70% of MSME loans target short-term needs: report

About 70% of MSMEs sought loans for short-term needs, mainly working capital and inventory, according to a survey by Paisabazaar. Metro cities led applications, with Delhi NCR and Mumbai at the top.

A survey by Paisabazaar revealed that 70% of MSMEs applying for loans on its platform sought funds to address short-term needs, with less than 30% aiming to finance future growth.

The survey, analyzing loan applications since January 2023, revealed that 45% of loans were aimed at covering working capital expenses like salaries, rent, utility bills, and supplier payments, underscoring liquidity issues and cash flow challenges.

Another 24% of applications were for purchasing raw materials and maintaining inventory levels, essential for fulfilling orders, especially in manufacturing, retail, and seasonal industries. The remaining loan purposes included marketing and advertising (15%), upgrading machinery and equipment (9%), office purchases or expansions (3%), and existing loan repayments (2%).

The Paisabazaar’s survey indicated that the majority of MSMEs applying for loans were engaged in manufacturing, retail, or seasonal industries, highlighting the critical need for an uninterrupted supply chain to meet customer demand and fulfill orders.

Geographically, most applications came from metro cities, with Delhi NCR and Mumbai in the lead. The top seven metro cities—Delhi NCR, Mumbai, Hyderabad, Bengaluru, Kolkata, Chennai, and Pune—collectively accounted for 53% of the loan applications. About 47% of the applications originated from non-metro areas, with Jaipur and Surat as key contributors.

Parent company PB Fintech reported a 44% year-on-year revenue increase to ₹1,167 crore in Q2 FY24, alongside a net profit of ₹51 crore, reversing a ₹21 crore loss in the same period last year. Paisabazaar, however, reported an 8% decline in revenue to ₹143 crore, despite steady loan disbursements at ₹4,237 crore.

In regulatory developments, Paisabazaar disclosed receiving notices from the Income Tax Department under the Prohibition of Benami Property Transactions Act, 1988, and Section 142(1) of the Income Tax Act, 1961, regarding payments made to certain vendors.